I know the deep blue sea
Will soon be callin' me
It must be love - say
what you choose
I gotta right to sing the blues
The marketplace is comprised of a multitude of opinions that
are never in sync. If they were, little trading would occur as prices would
reflect the level of true value as deemed by all parties. Why trade if you don't
think you are going to get the best of it?
Today, there are many reasons
be bullish on the American economy. Among them are the
Consumer activity: Retail sales rose 0.4 percent in
April after a 2.1 percent March increase and has risen seven of the last nine
months with the remaining two flat. The Consumer Confidence Index has rebounded
from a low of 25.3 in early 2009 to 57.9 today.
certainly not setting the world on fire, payrolls have decidedly turned
positive, growing by 520,000 jobs in the last two months. Even the recent rise
in the unemployment rate from 9.7 percent to 9.9 percent is technically the
result of previously discouraged workers looking to reenter the
Manufacturing: The regional manufacturing surveys have
all bottomed and look to be heading up, while industrial production activity
rose by 0.8 percent in April after a 0.2 percent in March. Durable goods orders
measured on an annual basis turned positive three months ago and the ISM New
Orders Index has nearly returned to the levels we saw from 2003 to
Trade: The downward trend in our trade deficit has steadily
returned with both imports and exports increasing fairly steadily since last
June. Typically, the trade deficit narrows in recession and widens in recovery
as consumer activity picks up.
Despite these positive indicators, I just
can't get myself to take a medium-term positive view for the economy as a whole.
You know, the kind that projects rate increases on the near horizon along with
solid and sustained employment growth. Happy consumers and happy savers alike
going about their day making money, saving money and spending money.
my opinion, there remains a significant barrier to such an atmosphere. And that
is (no surprise here), the housing sector.
Today, our economy is
two-thirds consumption and consumers are worried about two things: their jobs
and their wealth. As long as these worries exist at the level they are today, a
sustained consumer-led recovery will not prevail even if credit availability
The primary risk to my interest rate outlook is that Bernanke
becomes too concerned about inflation given all the stimulus slushing around and
decides to move rates toward a more "normal" level. This would be a mistake and
would send the job market reeling downward once again as added business costs
(in the form of higher interest rates) act as a tax on operations — a tax that
consumers are in no shape to pay.
Instead, I see a continuation of our
slow growth out of the current low base of activity as market participants begin
to accept the new realities of our global economy. I've taken to calling this
"embracing the horror."
Though I am constructively positive on the
economy, it seems too many are unrealistically bullish. As a market analyst,
finding myself at odds with the consensus view is a comfortable place to be. In
fact, it's a requirement if I am going to add value. Today, I am in this
comfortable position and see no reason to revert to the market
In short, I gotta right to sing the blues!
In March, the trade deficit for goods and services
increased to $40.4 billion from $39.4 billion, up from its low of $25.8 billion
in May 2009. Both exports and imports increased by approximately 3.2 percent.
More than 100 percent of March's increase came in the petroleum sector due to
both increases in quantity and price.
Jobless claims for the week ended
May 8 decreased by 4,000 to 444,000, marking the fourth consecutive weekly
decline. Continuing claims for the week ended May 1 edged up by 12,000 to 4.6
million, but remain far below their peak of 6.5 million in the summer of
Retail sales performed largely as expected in April rising 0.4
percent with or without including the volatile auto sector. The rebound in
consumer activity remains in place potentially helping to boost overall economic
activity into the second quarter.
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those of the author and do not reflect the views of SVB Financial Group,
or SVB Asset Management, or any of its affiliates. This material,
including without limitation the statistical information herein, is
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